Thursday, September 25, 2008

The sleeping dragon (and China map)

Below is the map of China. As my portfolio had quite a bit of exposure to China, I think I should put in a map of the different provinces of China for future references.




These days, there are many reports by brokerage firms on S-shares. S-shares are Singapore listed China companies. As always, they have plenty of things to say about s-shares. With s-shares having superbly low PE below 10 (3 even!), there are reports saying some are value buys and some are never buys. When the bull is charging, reports of QDII funds coming delights these analyst, so target prices keeps shifting northwards. When the bear is charging, reports of possible frauds, unsustainable growth, poor governance (among other stuff) are cited to keep pushing the target prices downwards.



The table above shows some of the s-shares with warning signs. It's taken from a report from JP morgan. Surprisingly, out of so many s-shares, none of them mentioned my beloved Hongguo. Hongguo must be a pretty uninteresting company to these analyst, since not one of these big names mentioned them. I was a little perturbed when China milk had the privilege of being listed as the company with high cash, high debt. This 'indicates poor financial discipline', according to the report. 'Balance sheet management around book closure date, or in the worst case scenario, a possibility of fraud or embezzlement of cash' might be the possible reasons.

Well, it seems like chinamilk had the dubious honour of having total debt/market cap>30% and total cash/market cap>30%, hence it was identifed as having high cash, high debt. I wish to defend it, but was flabbergasted and not sure what to say. Why was I unable to defend? My confessions:

1. I did not read up much on china milk before buying.

2. I did not know the business as much as I would love to.

Forgive me, I bought one tranche in Dec 2007 and another batch in March 2008. Well, to atone myself from the sins of value investing, I promise to write a detailed report on the valuation and business of china milk, with as much detail as my Hongguo writeup. This will not only give me the confidence to hold on, but the confidence to add on when the opportunity so arises.

3 comments :

pau said...

Heya there,

Really looking forward to the analysis on ChinaMilk. The one on Hongguo was fantastic. :)

cheers!

la papillion said...

Hi Pau,

Thks for ur encouragement :) Will do it in due time.

Anonymous said...

hi, just to check have your wrote your analysis on chinamilk? as i have bought chinamilk too. was worried as you have mention about high cash and high debt.

Awaiting for your analysis at elaine_177@yahoo.com

Thanks